Consumers use auction-based systems to bid for and offer goods of value. Such auction-based systems can include an online shopping site, an online ticket booking system, electronic market, or any other trading exchange.
In the field of financial investments, individual investors and traders can buy or sell securities (such as stocks and bonds), foreign currencies, and financial derivative products over an electronic trading platform. Well known electronic trading platforms, such as NASDAQ, NYSE Arca, Globex, London Stock Exchange, BATS Direct Edge, Chi-X Global, TradeWeb, ICAP, and Chicago's Board of Trade, provide virtual marketplaces comprising an information technology infrastructure for buyers and sellers to bid on financial instruments. Typically, a trader submits a bid to an electronic trading platform via an electronic terminal such as a personal computer user interface; and the electronic trading platform transmits bid and ask information that reflects real-time pricing of a financial instrument via a communication network to computer terminals of different trading entities.
There have been efforts made in the financial community to improve the efficiency and fairness of electronic trading systems at market centers and exchanges such that the buy-side investors can route and execute their trade orders without being taken advantage of by other players in the market such as high frequency traders. Many investors are not well informed about predatory trading practices in the security market and may not realize that they could exert some control over their trade orders that used to be completely entrusted to brokers or brokerage firms.
Furthermore, the existing private and public market centers or exchanges tend to distribute too little or too much trade information to market participants. As a result, there is a lack of transparency with some marketplaces while an oversupply of market data in others, both of which create opportunities for unfair trading practices against investors and could lead to their distrust of the marketplaces.
Existing electronic trading platforms also lack an efficient mechanism to help brokers or brokerage firms mitigate risks in certain situations when they have to take on risky positions in providing services to their investor clients. Many such services and related trades are still handled manually and/or on an ad hoc basis, potentially exposing the brokers or brokerage firms to market risks longer than necessary.
In view of the foregoing, it may be understood that there are significant problems and shortcomings associated with current tools and methods for electronic trading.